Samsung will abandon the smartphone market within five years: Analyst

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For the past few years, two companies have accounted for virtually every scrap of profit in the smartphone business: Apple and Samsung. Even this comparison, however, is misleading, since it implies that the two companies split the market more-or-less equally. In reality, Apple captures the overwhelming majority of the profit. Now, one analyst is predicting that slumping sales at Samsung could lead it to abandon the Android market altogether.

The argument is straightforward: Because Samsung doesn’t own its own operating system, it can’t prevent third-party manufacturers from slipping in and cutting prices while offering equivalent products. It also explains why Samsung attempted to create its own Tizen OS, even though that didn’t work out in the end. Regardless, this creates a race-to-the-bottom mentality that favors low-cost Chinese manufacturers like Huawei and Xiaomi over the likes of Samsung. Not coincidentally, it also favors companies like MediaTek and Rockchip, and we’ve seen SoC sales from these vendors boom in recent years, as the carriers that use them gain market share worldwide.

Samsung dominated for years, but has lost market share to upstart manufacturers

Once the market has decided that “good enough” devices are actually good enough, the thinking goes, Samsung can no longer maintain margins and the value proposition for Android collapses. I don’t think the author is entirely wrong — but pinning all of Samsung’s problems on the fact that it doesn’t control Android is simplistic.

First, Samsung manufacturers dozens of devices, and while some of these devices share chassis and components, it’s inevitably going to incur overhead as a result. Each device requires its own updates and its own testing, which is one reason why it takes carriers so long to release their own OS updates, and why security patching so often falls through the cracks. Every Android device requires its own driver stack and hardware certification because even similar phones may use different components, and those components require their own drivers and software to work optimally. Part of the reason the company finds itself having difficulty competing is because it’s chosen (or forced, depending on carrier pressure for “exclusives”) to blanket the Android handset market with dozens of devices a year, even when the performance of that hardware is poorly differentiated and unexplained.

Samsung has a grid of several dozen smartphones (I stopped counting after 18) ranging from the relatively new Note 5 and S6 Edge+ to the ancient S4 and S4 Zoom. Apart from storage options, the devices aren’t meaningfully differentiated in any way. Every phone is listed as a near-perfect star rating. There’s no meaningful way to sort phones by capabilities and no meaningful information is displayed in the grid format.

Now, compare that to what Apple offers in its “Choose which iPhone is right for you” link:

Apple’s presentation isn’t perfect, but it blows Samsung out of the water.

Very, very few buyers will consult an exhaustive list of Samsung or Apple products before making a decision, but the sheer number of Samsung devices on the market make it incredibly difficult to know which devices to recommend. I work in tech for a living, and I regularly find AT&T offering Samsung smartphones I’ve never heard of. A little Googling typically proves that these are niche products with an extra feature or two, but the sheer volume of hardware makes it less likely that anyone working in a cell phone store is going to be able to guide customers straight to the “right” product for them.

I’d argue part of the reason Samsung is losing the high-end market is because Samsung offers a ridiculous volume of high-end hardware. Over at AT&T’s own website, there are five new iPhones for sale. The iPhone 6S Plus starts at $749, while the old iPhone 5S is now $449. Samsung’s Galaxy S6 Edge+ starts at $815 and none of the S6 family is less than $585 off-contract. AT&T doesn’t offer a Samsung Galaxy device for $500, though the Galaxy S5 at $519 is close.

Samsung’s other problem, however, is that it has failed to differentiate either its Android software or hardware. UI skins like TouchWiz tend to be loathed more than cheered. The Galaxy S6 came closer to offering custom Samsung hardware than any previous smartphone the company has offered, thanks to an early jump to 14nm, but it’s still running a stock ARM CPU core. Apple chose to begin investing in its own CPU architecture when it bought PA Semi; Samsung is years behind offering its own take on ARM (and therefore years behind on being able to differentiate its products with its own hardware).

Samsung is far from the first hardware vendor to be terrible at building software, but is it strictly Android’s fault that the only company actually making a profit in the Android phone business hasn’t managed to create its own customized software versions that its customers actually want to use? As a major hardware vendor, Samsung has ties to companies like Imagination Technologies and Qualcomm. If it wanted to adopt specific GPU technologies and showcase their performance in Galaxy devices, it’s got the cash to do so. Heck, it’s got the cash to create Samsung-optimized versions of popular mobile titles as a way of showcasing its own hardware and software.

The recent surge of interest in privacy-focused Android devices from the Blackphone to the Blackberry Priv is evidence that consumers are interested in premium Android devices that offer unique features. Whether that interest is enough to create a sustainable market is anyone’s guess (I don’t think Blackberry is exactly winning polls these days), but at the very least, there’s interest in unique features provided around the Android operating system.

Samsung, in other words, isn’t just being pushed out of the market because Android is a modular operating system that invites handset manufacturers to compete. It has also made some long-term strategic mistakes on price and features that diminish its ability to market its own hardware as distinctive. Saturation-bombing markets with hardware is clearly no longer working and it’s time for a new strategy.

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